Servicer reports for January and February (through yesterday) hint at the first real improvement in second lien and HELOC performance in several months as the charge-off rate and the total delinquency rate loans have both decreased. The improvements are not consistent with a major tide shift but they provide the first ray of light that I have seen in otherwise abysmal performance.
It is difficult to know whether the improving statistics result from genuine improvement or a temporary boost as HAMP modifications are completed. I am not sure anyone really knows, but I suspect a little of both.
ABS CDOs have been decimated beyond any hope. And CMBS delinquencies are almost at the point where it will be difficult for MBIA to avoid taking reserves for much longer, and the deterioration appears to be accelerating. If MBIA’s CRE exposure goes bad, it won’t really matter what happens to second liens.
The situation seems a little like a basketball team that has scored two consecutive baskets to narrow the fourth quarter deficit to 25 points. It doesn’t mean the odds of winning are great, but scoring four points is better than turning the ball over twice.
Unless there are some extremely beneficial commutations or other settlements, Ambac is beyond hope. The odds are probably 50-50 that Statutory Surplus for AAC remains positive at end of the fourth quarter.